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What Are Smart Contracts? Beginners Guide For 2021

Beginner’s Guide To Smart Contracts
Bitcoin was the first major Blockchain application and since then most of us have come to a basic understanding of how Blockchain works. However, over the years, this technology has been rapidly growing to include other applications that can be used for myriad purposes and one such Blockchain application that has become quite popular in recent times is Ethereum, which is used to create Smart Contracts.

At Siddhatech, we offer a comprehensive Smart Contract development services. As such, in this post we’ll take a look at; what is a Smart Contract, how do Smart Contracts work, what are its benefits and the various areas where we can make use of Smart Contracts. So, let’s get started to see how Blockchain Smart Contracts help individuals and businesses.

A] What Are Smart Contracts?

In simple words, Smart Contracts are a set of computer code (protocols) that runs on the Blockchain technology and comprises of explicit terms & conditions (pre-defined rules) that are established by the consent of the involved parties. Smart Contracts helps to verify, enforce & execute digital transactions in a credible way without the involvement of third parties. This enforces transparency in all dealings, be it the exchange of money, shares, assets, property or anything of value.
A perfect example of Blockchain Smart Contracts is when you require to obtain a document of proof from the court of law. In a traditional scenario, you’d need to first hire a lawyer, pay them and then wait for the document to be given to you. But, with Smart Contracts, you’d be able to eliminate the need for a lawyer, as all you need to do to obtain a document is run the process with Smart Contracts, pay for it and get the document you want.
Furthermore, unlike traditional contracts that just defines the rules & penalties of an agreement, Smart Contracts take this a step forward by automatically enforcing/executing the said rules and obligations. Thus, greatly reducing the risk of fraud and scam.
Smart Contracts

B] How Do Smart Contracts Work?

Smart Contract is a Blockchain application, created with the help of Ethereum, which is a popular Blockchain platform. As stated above, just like a standard legal contract (on paper) that outlines the term of the agreement between two individuals or organizations, Smart Contracts does the same albeit it uses programming languages such as Solidity, Python or GoLang.

It works on a condition-based principle IF-WHEN-THEN and one of the classic Ethereum Smart Contract examples is when buying a property.

Here, the involved parties can set conditions like;

IF/WHEN the X party transfers the property on my name, THEN I’ll pay the sum of money agreed upon. Or IF/WHEN I pay the sum of money agreed upon, THEN the X party will transfer the property on my name.

There is no limit to the conditions/terms you can include in your Smart Contracts. And, it’s only when these set conditions are successfully met, the Smart Contracts would execute and validate your transaction.

Moreover, since these Contracts are stored in a distributed system, both parties can interact with each other in real-time without the involvement of a third-party. This would save a considerable amount of time and money. In addition, these encrypted contracts are stored in a decentralized ledger which ensures that it can’t be deleted, thus eliminating the chance of fraud. It also offers the involved parties the option of anonymity if that’s what they require.

C] Blockchain Network Using Smart Contracts


As one of the popular Blockchain platforms, Bitcoin can be used to create Smart Contracts. One example is Rootstock (RSK), which is a two-way pegged sidechain to Bitcoin. This was specifically designed to enable smart contract functionality. However, though Bitcoin offers a suitable programming language for creating custom Smart Contracts (payment channels, multi-signature accounts, escrows, and time locks), it is not as programmable or extensible as Ethereum.


An open-source platform designed and created to support Smart Contracts, Ethereum is the most notable smart contract framework. Programmed in the Solidity language, Ethereum is a decentralized and global platform that allows developers to write codes for Smart Contracts that can be accessed from anywhere without any hassle of third-party interference, fraud or downtime. Plus, one can store transactions between people, transactions involving Smart Contracts, among others, easily on the Ethereum blockchain database.

D] What Are the Advantages of Smart Contracts?

Now that you know the Smart Contract definition and how Smart Contracts Blockchain application work, here is a quick look at the benefits of Smart Contracts you can obtain by shifting to this digital platform from the traditional one.


Since Blockchain Smart Contracts are a self-executing system, it needs to be precise or it might result in an error while executing. This ensures high accuracy. Also, by shifting to Smart Contracts, you’d be able to prevent human errors that come from manually filling out forms.


As a distributed network that works online, Smart Contracts eliminate the need of manually processing each document. This speeds up the execution process, which not only helps save time but also results in quicker decision making.


All terms and conditions included in a Smart Contract are thoroughly checked and agreed upon by all involved parties before the contract is coded. This ensures total transparency at all times. It also eliminates any dispute that may arise later on.


Without the need to involve any third-party, middlemen or intermediary, individuals and business organizations would be able to significantly reduce operational and transactional costs. Thus, saving a lot of money in return.


Greater accuracy, speed and security ensures that all transaction processes get done at a faster rate. This improves time efficiency, enabling you to complete high-value projects swiftly.


Smart Contracts offer the highest level of safety standards as it makes use of the best-in-class data encrypted technology. This prevents hacking and offers protection from all threats.

Security 1

Paper Free

Smart Contracts are also eco-friendly, as by going digital you’d be able to

Data Storage

Smart Contracts Blockchain application offers easy storage & backup feature that ensures all records of your contracts are safely stored and can be accessed anytime you want. This prevents data loss and in case the data does get lost (which is very very rare) it offers you a simple restore option.

Data Storage


Since there is no way to delete or alter information in Smart Contracts once it’s encrypted, it fosters a higher level of trust between the concerned parties. There is also transparency and easy access to all records at all times as it is stored on a distributed ledger, which helps to further encourage confidence between all.

Clear Communication

With Smart Contracts, you need to be specific and detailed while establishing terms and conditions. This leaves little room for misinterpretation at a later stage. Thus, helping you forge an agreement based on a clear and direct communication.

E] What Are Smart Contracts Used For?

Smart Contracts Blockchain application can be used for varied purposes by individuals, business organisations and for the Internet of Things (IoT). Mentioned below are a few areas where Smart Contracts are currently being used for.

1. Smart Contracts Applications for Healthcare

The number #1 concern in the healthcare sector is the misuse of patients information. Since most of the clinical data is maintained on paper, private health records are often vulnerable to theft. Thus, here, Smart Contracts can be a valuable aid as it will not only ensure complete security & integrity of all clinical data but it will also make sure that no third-party has access to these private records.
Also, maintaining the numerous healthcare-related records can be cumbersome leading to administrative inefficiency. As such, with Smart Contracts, this issue would also be resolved as it facilitates the easy organization of general healthcare management. This includes the supervision of all healthcare supplies and drugs to ensure there is no transgression. It will also take care of regulation, compliance and testing needs, limiting the need for any third-party involvement and human error.

2. Smart Contracts Applications for Real Estate

As mentioned above, be it renting an apartment, buying a property or selling a piece of land, with Smart Contract you can easily create agreements and make transactions all without paying a dime to brokers, middlemen or real estate agents. This will also terminate instances of fraud, as all terms & conditions will be encrypted leaving no chance for manipulation.

3. Smart Contracts Applications for Government


One area where Smart Contracts can be a great aid for the Government is the overhauling of the Voting systems. Smart Contracts applications like FollowMyVote which works on Blockchain technology offers a secure online voting platform ensuring accountability and transparency during elections.

By adopting this technology, the government can prevent human error and overcome the hurdles of faulty systems. This will help reduce costs significantly and ensure greater security, voter privacy and easy accessibility, which can help boosts voter turnout.

4. Smart Contracts Applications for Insurance

While bankers are worried about Blockchain, it, nevertheless, can be an amazing resource that can help revamp the structure of the financial world.
One of the major hurdles for most insurance companies is the time-consuming claim process. Since this process is done manually, it leads to not only customer dissatisfaction but also increases the administrative costs. Thus, if insurance companies want to improve and streamline their operations then they should seriously think about using Smart Contracts applications.
With Smart Contracts, an insurance company can automate the claim process by defining terms & conditions or setting pre-agreed parameters, which when met successfully will lead to the release of the exact amount. This will help companies improve customer relationship and trust. Plus, it will reduce the administrative costs, saving more money.

5. Smart Contracts Applications for Supply Chain

For retailers, supply chain management can be a challenge as it involves a lot of tasks. Ensuring each and every task is done as per specifications may not always be possible leading to theft and mismanagement. As such, in this scenario, Smart Contracts can be your trusted companion. From tracking inventory to managing invoices & reports to monitoring compliance, retailers can achieve a lot more through this technology that too, at reduced costs.
Offering benefits like greater transparency, automation of day-to-day tasks, reducing fraud and helping save money, Smart Contract is just what retailers need to enhance administration and management efficiency.

6. Smart Contracts Applications for Management

Smart Contracts can help with smooth business management and seamless workflow within an organization or industry. By automating the management system, one can be sure of timely performance without any delays. It can also help improve accuracy and increase transparency while eliminating errors that come with independent processing.
Through Smart Contracts, various business operations can also be handled at a faster rate, without having to wait for internal or external approvals, as soon as the pre-set/agreed conditions are met. One can also automate payrolls for their staff, thus ensuring timely payment at all times without a hitch.

7. Smart Contracts Applications for Automobile

Lack of transparency is one of the biggest challenges in the auto industry that can be easily resolved with Smart Contracts. From quoting a fair purchase price and leasing to keyless authentication and digitization of records, Smart Contracts can make everything transparent, thus improving accuracy and eliminating the need for a middleman. This can help save a lot of time and money and can help resolve numerous other potential issues in the future, especially in the vehicle supply chain area.

8. Smart Contracts Applications for Banking

The banking industry can greatly benefit from adopting Smart Contracts applications to automate different traditional model of transactions. From loans and payments to online identity management and other financial operations, Smart Contracts can help streamline various processes safely and securely.
For instance, with the help of Smart Contracts, banks and credit institutions can easily automate the KYC process for individuals as well as businesses. This will ensure accurate transfer of information while ensuring the client complies with the set regulatory norms, thereby greatly reducing the room for manual errors or misinformation.

9. Smart Contracts Applications for Legal Issues

We all know that with the traditional model, resolving legal issues and verifying and certifying documents can be a time-consuming and expensive affair which can lead to unnecessary delays. Thus, to eliminate the need for notarization, Smart Contracts Blockchain can be used to automated various legal processes, thereby offering faster and unbiased resolutions which are also cost-effective. One example of notarizing documents using the Ethereum is

10. Smart Contracts Applications for ICOs

An Initial Coin Offering (ICO) is a fundraising (crowdfunding) system in which new applications that use blockchain technology sell their underlying crypto tokens in exchange for Bitcoin and Ether (token on the Ethereum platform). These tokens can be likened to the shares in a company, and the value/price of it increases/decreases based on the demand or popularity of the project/application. Some of the ICOs that have found success through this route is BunnyToken and Lendo.
To understand how Smart Contracts applications can help with ICOs, here is an example.
Suppose to start a project, you require $100,000. Here, let’s assume that $100,000 is equal to 50,000 Ether. You decide to call your tokens (XYZ) and put 100,000 XYZ tokens into the smart contract. Let’s say that each XYZ token is valued to be 0.5 Ether. Thus, to achieve 50,000 Ether, you need to sell 100,000 tokens i.e 100,000 x 0.5 = 50,000
Now, in the smart contract, you can set conditions like;
IF/WHEN an individual sends 0.5 ETH to the smart contract, THEN the smart contract will send 1 XYZ token to the individual who sends 0.5 ETH.
Thus, with Smart Contracts, you can securely automate the whole crowdfunding process while ensuring that the individuals contributing towards the ICO are getting the right amount of XYZ tokens.

FAQs Section

1. When and Who Invented Smart Contracts?

Smart Contracts was invented in the early 1990s by Nick Szabo. He is an American computer scientist, lawyer, and cryptographer, who first coined this term. He also invented a decentralized virtual currency called “Bit Gold” in 1998, approx 10 years before the invention of Bitcoin (in 2008).

2. How Many Smart Contracts Are There?

While there is no exact count of how many Smart Contracts are out there, according to Coindiligent, the count of Smart Contracts deployed on Etherum includes over 1,000,000, which holds a total of over 100,000,000 ETH.

3. Why Smart Contracts Are Important?

When you take into consideration all of the above-mentioned advantages of Smart Contracts, the importance of it gets clearly highlighted. From eliminating middlemen and speeding up various processes to lending top-notch security, greater transparency and optimal data storage, early adoption of Smart Contracts can help businesses save a lot of time and money in the long run while effectively dealing with the issue of mistrust, delays, and manual errors.

4. What Programming Languages Are Used to Write Smart Contracts?

Some of the programming languages that are used by developers to write Smart Contracts are Solidity, Javascript, C++, Golang, SQL, and Java. Several other programming languages can also be used. However, the above-mentioned names are high-level programming languages used for Smart Contracts. Go here to read about each programming language.

5. Does Bitcoin Use Smart Contracts?

While Bitcoin can execute simple Smart Contracts, it does not support the execution of complex Smart Contracts. Also, more often than not, designing and executing Smart Contracts with Bitcoin can be costly and challenging, which is the reason why Ethereum Smart Contracts are so popular.

6. How Smart Contracts Work in Ethereum?

Ethereum is a decentralized platform that runs Smart Contracts. It was specially created for developing Smart Contracts and provides a decentralized virtual computer [Ethereum Virtual Machine (EVM)], which enables developers to create their own Smart Contracts that are executed based on the rules programmed by the developer. Read here to know more.

7. Where Is The Smart Contract Stored?

Smart Contracts are technically stored on the Blockchain itself. When Smart Contracts are deployed, they get compiled into byte code, and this code is stored on the ledger on the Blockchain. This makes the contract easily available to individuals who want to make a transaction. Also, apart from the Blockchain, Smart Contracts are available on the deployed machine.


There is no doubt Blockchain Smart Contracts is the future that’ll bring about the much-anticipated change in the way things are conducted across various industries and platforms. By being an early adopter of this technology, you’ll be able to always stay ahead of your competition.
More importantly, you will be able to provide your customers with enhanced services, which will only lead to more profitability and success for your company.
Thus, become a part of this digital revolution and for further assistance or to know how Smart Contracts can help you contact us right away!

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